The simplest way to break in to the payment-processing business is by forming an independent sales organization (ISO) to solicit merchants to sign on with you and route their credit and debit card payments through your company. You will receive a percentage of credit card volume, a flat fee for each PIN-based credit card transaction, and whatever you can get on the payment processing equipment. The industry is competitive, however, and you will be going head-to-head with rival processors on a regular basis competing for business.

Do market research. Determine how many retail businesses are in your area. Research what competitors are offering and how much they are charging.

Create a business plan. Plan out how you will operate your business, what services you will offer and how much you will charge for them. Plan out how large your sales force will be and how they will be compensated. Write down how much capital you will need to start and operate the company initially and how you will obtain the capital. Plan out how you will market your new business.

Enter an agreement with a partner bank. You must have a Visa/MasterCard bank to underwrite your transactions and handle the interbank routing. You can do this by contacting banks in your area or that serve your preferred market directly, meeting with the bank management, and showing them a business plan including how merchant payment services will help them cement relationships with the small-business community.

Partner with a leasing company. A leasing company will help you generate business by helping cash-strapped small-business owners finance their credit card processing terminals, equipment and ATM machines. You can give a customer a choice: Lease a terminal for $40 per month, or purchase it outright for $1,150, or whatever your price is. Most customers will lease it. The leasing company will then send you a check for the purchase price of the terminal, minus their leasing fee.

Obtain a wholesale source of equipment. To make a profit on equipment, or compete successfully with other providers, you will need to get a distributor agreement with one or more transactions systems manufacturers. Some prominent companies include VeriFone, Hypercom and Diebold.

Recruit a sales force. These people will be responsible for calling on business owners and soliciting their business. Most are paid on commission or on a salary base plus a commission and work as independent contractors. The manager will receive an override on all the business his sales force does. You will have to offer the sales force enough in compensation to keep them working on your behalf, but not so much that your business is no longer profitable.

Contract with American Express. This is a separate company from Visa/MasterCard, and it charges merchants a higher discount rate on transactions. However, it also has a loyal and affluent customer base that tends to spend more per transaction than other cardholders do. You must get a separate contract with American Express and get your customers to agree to taking American Express on a separate document.

Tips

If you need to take out a business loan to start out, you will need a professional-looking business plan to present to a bank.

If you decide to lease or buy commercial office space, you will need more startup money to pay for it and you will need property and liability insurance.

Warning

Be prepared to make a capital outlay to become an ISO. If you want to become a registered ISO with Visa/MasterCard, you will need to pay a fee of as much as $10,000 per year, and $5,000 per year to continue your registered status. This allows you to bring other ISOs under your license. If you want to work under a registered ISO's license, or directly with a bank, you may not have to pay this fee.